Business Times – 30 Jul 2010
THE Real Estate Developers’ Association of Singapore has made a bold move by launching its Real Estate Sentiment Index (RESI).
The industry has taken a risk going public with the sentiment index, which it developed jointly with the National University of Singapore’s Department of Real Estate.
As expected, brickbats have surfaced, with sceptics questioning the credibility of developers – the key respondents in the survey for the index – as they have a natural vested bias towards generating positive sentiment, which is good for their business of selling homes.
Looking at the evidence so far, RESI for Q1 and Q2 this year, respondents seem to have been fairly honest on the whole.
The index is based on a quarterly structured questionnaire survey conducted among senior execs of Redas member-firms – mostly developers. About 70 respondents – largely the same – took part in the Q1 and Q2 surveys.
RESI comprises three indices – a current index, which measures perceptions over the past six months; a future index tracking expectations for the next six months; and a composite index, the average of the two other indices. The indices range from 0 to 10, with a score of above 5 showing improving market conditions and of below 5 indicating deteriorating conditions.
The composite index fell from 6.8 in Q1 to 5.9 in Q2, which seems to tally with ground experience. Sentiment in the local property market was hit in the second quarter by Europe’s sovereign debt crisis.
However, the true test for RESI and Redas will come with time. Some sceptics are wondering if the index will ever fall significantly below 5 when things become really bad again.
Will developers responding to the survey be honest and indicate how dire the situation on the ground is, knowing they risk causing a further downward spiral in sentiment if they do so? Some respondents may come to a consensus about how they’ll vote, as they may feel pressured to try and preserve sentiment. So the index could be subject to manipulation, goes the argument.
There may also be a reverse situation where instead of wanting to paint a rosy picture, some respondents may wish to paint a bleak one when that suits them – for example, when developers try to lobby government to moderate its land sales programme.
Frankly, anything’s possible. Of course, developers know they will be laughed at if the final index paints a rosy picture when everyone knows things are pretty grim. The pressure of preserving their own credibility will serve as a check on developers’ responses veering too far from their true views.
A set of 70 respondents seems small but is actually a decent size for the Singapore property industry. Each respondent represents one company. About 60 per cent of the respondents are from property developers; the rest include property consultants, engineers, quantity surveyors and other professionals.
What’s to be welcomed about RESI is that it is forward looking since respondents are polled for future sentiment – complementing the vast body of ‘backward-looking’ real estate data available from Urban Redevelopment Authority, property consultants and other organisations such as the NUS’s Institute of Real Estate Studies, which produces the Singapore Residential Price Index.
RESI will provide another piece of information that stakeholders and players in the property market can take into account in making their decisions. No one’s expecting home buyers to read just the RESI and dash off to a developer’s showflat. Those who believe developers can’t be trusted to express honest views on the market can always choose to ignore RESI.
Time will tell if RESI will prove sustainable.
The stakes are high for Redas. The best incentive that developers have for ensuring RESI’s authenticity and reliability as a gauge of their sentiment is a need to preserve their own integrity and that of their industry body. By going public with the newly minted sentiment index, Redas president Simon Cheong and CEO Steven Choo have raised the ballgame for the 51-year old organisation to a whole new level.
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